Archive for June, 2011

On occasion we make a new loan origination. Recently, I was contacted by a referral source who presented an opportunity to make a refinance loan on a 10 unit apartment building in West Hollywood. One of the old loans on the building had a balloon payment come due. When borrowing money from a non-bank source, you can expect that the loan rate is going to be higher than the bank would offer you. In this case the borrower had difficulty going to a bank for several reasons.

The borrower had only part time employment and doesn’t have much income, only the income from the rents at the building to speak of. There were enough rents to pay for a loan payment of about $6,000 per month and enough left over for all the fixed expenses and some reserves for replacements, as things wear out or break over time.

After inspecting the building and meeting with the borrower, it was evident that there was much deferred maintenance to be done, also the borrower had a habbit of paying his bills, including mortgage payments at the last possible moment in the ‘grace’ period. Borrowers think that if they mail their payment on the 14th of the month that it is on time. If your monthly payment is due on the 1st of the month, each day past the first, the payment is in a ‘grace’ period until the 15th, but if you think about it, it is 14 days past the due date if you mail it on the 14th and from many years in this business I can tell you that the mail doesn’t always deliver the next day, so when we receive your payment on the 16th, 17th or 18th, we mark it late, also charge a late charge to the account. Your FICO score is one of the things you likely don’t think about or much care about until you try to borrow money. Having habbits like the one I just described can really pull your score down. If your score is much below 680, you are not going to get the most preferred interest rate at the bank, if your score goes below 640, you are not going to get a bank loan at all these days.

After consulting with the borrower and our inspection of the building, we came up with a loan at 7.5% using our private funds, payable monthly, with a due date in 4 years. We are also withholding money in order to get the deferred maintenance completed. We also do not have a prepayment penality in our loan, so the borrower can pay us off at any time by finding a better loan at a bank. We did charge a 4 point fee, which is about the lowest I can go on a loan origination, the bank would only be 1 point, but the borrower was not able to proceed after being turned down due to credit issues and the deferred maintenance.

If you own a Multi-Family apartment building in So. California and need a refinance loan, we can arrange financing with a bank by being your loan broker, recently we secured a 5.3% fixed rate 10 year loan on a 15 unit building in Los Angeles, we only charged 1 point fee, since we didn’t have to use private funds. Give us a call if you would like to get a quote.